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Adding Value with Spending Control Functionality

Adding Value with Spending Control Functionality. Excerpted from IPA/USHFI Financial Products Innovation Fund II Informational Webinar Jonathan Zinman Professor of Economics Dartmouth College Scientific Director, U.S. Household Finance Initiative.

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Adding Value with Spending Control Functionality

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  1. Adding Value with Spending Control Functionality Excerpted from IPA/USHFI Financial Products Innovation Fund II Informational Webinar Jonathan Zinman Professor of Economics Dartmouth College Scientific Director, U.S. Household Finance Initiative

  2. Innovating with Spending Control Functionality • Consumer pain point (generally speaking): • Many people feel like they spend and borrow too much • Business case premise: • Value-added in helping people do better • People will pay for that value-added, or it will pay for itself • Design strategy: • Attach spending control functionality to existing debt/payments products • Three ideas along these lines…

  3. Spend Control Idea #1: Float-Free Credit Card • Consumer pain point: the credit card slippery slope • Get new card/liquidity • Splurge during the float/teaser period • Don’t pay in full (even if intend to) • Product innovation: • Float-free credit card • Marketing that says: transparency not tricks • Business case could work because: • People value commitment (face real cost of spending at all times) • Selects better credit risks (more self-aware borrowers) • Eliminates transactors

  4. Spend Control Idea #2: Spending Limits • Consumer pain point: mad money factor with liquidity • Can we do better than the card-in-the-freezer trick? • Product innovation: consumer-imposed spending/withdrawal limits • Time-based ($50 cap on Fridays after work) • Amount-based (cut off after $300 this month) • Merchant-(category) based (the latte problem) • Channel: cards (MasterCard InControl); ATMs Too? • Business case could work because: • People value commitment • Selects better credit risks (more self-aware borrowers) www.poverty-action.org

  5. Spend Control Idea #3: Loan-linked Decision Aid • Consumer pain point: overspending on big-ticket items • How much should I spend on a car, house, college education? • Product innovation: link budgeting tools to loan • Could be voluntary, could be compulsory • Could be linked to concession on rate/terms • Channels: online, mobile, etc. • Business case could work because: • People value the help • Selects better credit risks (more self-aware, prepared borrowers) • Provides additional data for underwriting www.poverty-action.org

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